Bank loans may help Hon Hai exit from Sharp deal

Bloomberg

Tue, Oct 02, 2012 - Page 13

Hon Hai Group’s (鴻海集團) plan to buy a stake in Sharp Corp may end after the Japanese TV maker signed loans from banks, giving the Taiwanese group a reason to exit its commitment to help the unprofitable company.

Sharp’s talks with Hon Hai may continue until the expiration of a self-imposed, one-year deadline in March, an executive for the Osaka-based company said on Friday.

The two probably would continue cooperating even without an investment, both firms have said.

Hon Hai chairman Terry Gou (郭台銘) has backed away from buying a stake in Sharp after falling demand for TVs and display panels prompted the company to widen its annual loss forecast eightfold. The Taiwanese group said it would renegotiate an earlier deal to buy 9.9 percent of the company for ￥67 billion (US$863 million) as shares have fallen 61 percent since that announcement.

Sharp said on Friday it received ￥360 billion in financing from two banks.

Sharp also sold a stake in its largest LCD factory to Gou, who funded the deal from his own money, and renamed it Sakai Display Products Corp.

“Sharp and Foxconn [Hon Hai’s trade name] kept up the charade until the point there was an out for both of them, which the loan provides, and neither of them seem too excited about the deal now,” said Albert Moel, a Hong Kong-based analyst at Sanford C. Bernstein. “I think Terry Gou had every intention to do the deal, but even he couldn’t have envisioned that the price would drop so much.”

Sharp, Japan’s biggest LCD maker, signed the funding package with its lenders last week. The company earlier presented its main banks with a revival plan that included cutting more than 10,000 jobs, or 18 percent of its work force, and selling overseas plants, as well as US solar developer Recurrent Energy LLC.

Shares in Sharp were unchanged at ￥193 at the close of Tokyo trading yesterday. Hon Hai, which assembles Apple Inc’s iPads and iPhones, dropped 0.76 percent to NT$91.30 in Taipei trading.

Sharp plans to continue collaboration with Hon Hai even without investment from the Taiwanese manufacturer, the Sharp executive said. The two companies are considering joining forces on smartphones and displays, he said.

“It matters for Sharp whether it can build a closer relationship with Apple,” said Mitsushige Akino, who oversees the equivalent of about US$600 million in assets at Ichiyoshi Investment Management Co in Tokyo.

Hon Hai spokesman Simon Hsing (邢治平) said the companies were keen to cooperate in many areas. He declined to comment on the status of investment talks or whether Hon Hai might buy Sharp factories around the world.

Miyuki Nakayama, a spokeswoman for Sharp, did not respond to a message left on her cellphone.